02.07.12

Does a Cost Segregation Study Make Sense for Your Real Estate Holdings?

by Lori Collingsworth, Principal

Significant tax savings can be hidden in your real estate investments.  Argy provides cost segregation studies for your real estate holdings which can provide tax savings and improve cash flows.

What is a Cost Segregation Study?

A cost segregation study identifies and reclassifies assets within your building to their individual component lives.  The result is that certain costs within your building can be allocated to shorter depreciable lives (generally 5, 7 or 15 years) as opposed to real property lives which are currently 27.5 years for residential rental or 39 years for commercial property.  A cost segregation study is based on an IRS prescribed engineering analysis that is used to support the acceleration of depreciation deductions by identifying component costs that can be allocated to shorter IRS prescribed recovery periods and assigning the appropriate value to them. 

Benefits

• Improved Cash Flow

• Your business can accelerate tax depreciation deductions and defer federal and state income taxes. 
• Take advantage of the time value of money by front-loading depreciation. 

• Improved Asset Management

• Provides a company with the information necessary to write off assets that become destroyed or obsolete.

What Types of Property Can Benefit From a Cost Segregation Study?

The types of property that can potentially benefit from having a cost segregation study performed are extensive and include almost any type of property for a commercial investment purpose. 

Argy’s cost segregation clients have included shopping centers, office buildings, senior living centers, restaurants, apartment buildings, hotels and automotive dealerships.

A typical cost segregation study will move 10%-25% of the costs from 39 years to shorter life asset classes.  The net present value of savings is generally equal to 20% of the amount allocated to short life assets. 

The prime times to take advantage of our cost segregation services include:

• New building construction
• Real property acquisitions
• Real estate partnerships with ownership changes wishing to adjust the basis of their interest with a significant amount to allocate to real estate holdings
• Renovation, restoration or expansion of existing properties
• Significant additions of leasehold and tenant improvements

For more information on our cost segregation services, contact:

Dean Peterson, Partner
dpeterson@argy.com
703.770.6372

Jeff Schragg, Partner
jschragg@argy.com
703.770.6313
 

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